more so in the organised sector.

On the basis of a survey of approximately 1,300 firms across

three export intensive sectors viz. textiles, diamond cutting and polishing, and handicrafts,
the study estimated that there was job loss in unorganised sector to the extent of
approximately 6%.

Although magnitude of job loss in the organised sector was small to the extent of 0.3%, wage
loss in the organised sector was significant. In unorganised sector, the job cuts were
compensated with increased working hours of the retained workers and hence wages were
increased, particularly, in textiles and handicraft sectors. Although the study is export sector
specific and the results cannot be generalised for the entire Indian economy, the assessment
for the country as a whole based on secondary data indicated that approximately 7 to 8
million potential jobs could not be created because of economic slowdown and resultant
slowdown in the India’s economic growth from 9% in 2007-08 to 6.7% in 2008-09. By any
standard, the impact of economic slowdown on Indian labour market cannot be undermined
as the same has potential to negatively impact the employment growth in future.

The Indian economy is back on the road to recovery as reflected by rising manufacturing and
overall economic growth. At this stage, it is likely that most of the ‘stimulus packages’
announced during the slowdown period may be gradually phased out. However, what is
important at this stage is to meticulously calibrate the process of phasing out. Unorganised
sector enterprises may need some of the stimulus packages such as interest subvention,
reduction in excise duty and other related taxes, soft credit, etc. to be continued until the
economy achieves the growth rate of at least 8% and the economy is pushed back to a higher
growth trajectory. In addition, special programmes for re-skilling and redeployment of
retrenched workers during the slowdown period are highly desirable.

2.4 PROJECTIONS OF LABOUR FORCE AND WORKFORCE

This section attempts to project some of the key labour market indicators of crucial policy
implication for the period 2009-10 to 2014-15. The projected figure for 2009-10 is useful to
understand the current labour market situation while the projections for later years are helpful to
understand the emerging scenario during the next five years or so to plan and formulate policy
accordingly. These projections follow methodology used by Rangarajan et.al, 2006.

Projection of total labour force has been done on the basis of trends observed between two
quinquennial rounds of NSSO surveys for 1993-94 to 1999-2000 and 1999-2000 to 2004-05. The
employment figures for 2009-10 are projected on the basis of the employment elasticity4 with
respect to Gross Domestic Product (GDP) observed during the period 1994-20055. At this stage,
it is important to note that along with other economies of the world, the Indian economy was
also affected, during the economic slowdown period of 2008-2009. Since the economic growth
was down to 6.7% per annum in 2008-09 as compared to 9% in 2007-08, the employment
growth also decelerated significantly. Accordingly, based on the employment elasticity with

4 Employment elasticity is defined as rate of change of employment with respect to rate of change of output.

5 It is important to note that the employment elasticity for the period 1999-2000 to 2004-05 was estimated to be fairly high at

0.48 as against a low of 0.15 between 1993-94 and 1999-2000. The longer period elasticity observed between 1993-94 and
2004-05 has been considered as it is likely to provide an average picture more acceptable for the future years’
employment growth.

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respect to GDP, the employment for 2009-10 is estimated to be 506 million with an average
annual growth rate of 1.97% for the period 2004-05 to 2009-20106.

The labour force for 2009-10 is estimated to be 520 million. Further, projections for labour force
and employment for the year 2009-10 were followed by a projection of the same for the period
2010-2015 on a yearly basis. This yielded the total magnitude of labour force increasing from 520
million in 2009-10 to 574 million in 2014-15 implying approximately 10 to 11 million additional
number of persons joining the labour force each year during this period7.

For employment projection, three different scenarios have been considered: if employment
grows at a) scenario I – 2% per annum, b) scenario II – 2.25% per annum and c) scenario III –
2.5% per annum. The estimates necessarily indicate that employment must grow at least at 2.5%
per annum for the next five years so that most part of the open unemployment including the
additions to the labour force may be taken care of by 2014-15 (Table 2).

One obvious question that arises is what rates of economic growth will the country need to
achieve the 2.5% annual growth in employment? The answer really lies in the magnitude of
employment elasticity likely to prevail in future. Again, three different estimates are presented to
have an idea about the possible employment elasticity and the required economic growth for
achieving three different scenarios of employment growth.

The estimates indicate that 2.5% growth in employment is achievable with an economic growth
of approximately 9% provided the average employment elasticity of 0.29 observed between
1993-94 and 2004-05 continues. If the employment elasticity falls to 0.25 , the required economic
growth will be 10% per annum. Similarly, more than 12% growth will be required if the
employment elasticity falls to 0.20. At the 0.20 employment elasticity and 10% economic growth,
only 2% growth in employment can be achieved.

The employment elasticity with respect to GDP growth, however, can be enhanced by
promoting labour intensive technology and sectors of employment with high labour capital ratio.
In the recent past, different studies have identified such sectors of employment at least at broad
level. These studies highlight that manufacturing sectors such as ‘sugar’, ‘food processing’,
‘industrial machinery’, ‘leather and leather products’, ‘jewellery’, ‘footwear’, ‘jute and mesta
textiles’, ‘readymade garments’, ‘coir’, ‘furniture’, etc. are labour intensive sectors with an
employment elasticity of more than 0.30. It is important to promote these industries in addition
to enhancing investment in road infrastructure and power. In addition to these manufacturing
sector industries, service sectors such as rail and road transport, tourism, retail trade, etc. are
highly labour intensive. It is important to note that Public Private Partnership (PPP) is critical for
attracting the necessary investment, especially in developing infrastructure.

6 Based on the employment elasticity with respect to GDP, the underlying annual employment growth has been

worked out to be 2.80%, 2.80%, 2.47%, 1.77% and 1.25% for the years 2005-06, 2006-07, 2007-08, 2008-09 and
2009-10 respectively. This yields an average annual growth of 1.97% for the period 2004-05 to 2009-10.

7Considering the robust and marginal growth in labour force of males and the significantly increasing female labour
force, particularly in the 20-29 age group, the overall growth of LFPR varied between 0.5 to 1% during 2010-11 and
2014-15. Accordingly, it is estimated that the overall LFPR will increase to 45.8% by 2014-15 with much of the
growth coming from the youth population.

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 Table 2: Projected Population, LFPR, LF and Employment during 2009-10 to 2014-15

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Total population 1177 1193 1208 1224 1239 1254

(in millions)

LFPR (%) 44.2 44.4 44.8 45.1 45.4 45.8

Labour Force (in millions)

520 530 541 552 563 574

Annual incremental
10 10 11 11 11 11
labour force (in millions)
Scenario I–Employment
506 516 526 537 548 559
growth (2% ) (in millions)
Scenario II–Employment
growth (2.25%) 506 517 529 541 553 566
(in millions)

Scenario III –
Employment growth 506 519 532 545 559 572
(2.5%) (in millions)
Notes and sources: Population projections have been taken from RGI, 2006; Projection of LFPR has
been done on the basis of linear trends in LFPR observed between1993-94 and 2004-05 across
rural-urban, male-female and various age groups of population; employment projection is based
on employment elasticity observed during 1993-94 and 2004-05 and GDP growth for 2009-10

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